“As a national strategy, China is trying to build an economy that relies on innovation rather than imitation. Clearly, its leaders recognize that being the world’s low-cost workshop for assembling the breakthrough products designed elsewhere — think iPads and a host of other high-tech goods — has its limits.”

Starting to put the infrastructure in place, in November the State Intellectual Property Office of China introduced a “National Patent Development Strategy (2011-2020),” with the goal of surpassing the United States in patent filings in 2011, which looks likely. In 2009, about 300,000 applications for patents were filed in China; the national plan calls for a huge leap, to one million, by 2015– more than double what innovators in the United States filed in the last 12 months.

This may be a government sponsored initiative, but the incentives put in place recognize that real innovation comes from individuals and private industry:

“To lift its patent count, China has introduced an array of incentives. They include cash bonuses, better housing for individual filers and tax breaks for companies that are prolific patent producers.”

These are pretty powerful inducements in a very individualistic, entrepreneurial society that just happens to have a Communist government.

American Defunding

The second article is an op-ed in the LA Times, “Fixing the economy the scientific way.” In its two “Gathering Storm” reports the National Academy of Sciences “has argued strongly that our future prosperity depends on investments made now in research and innovation.” As the authors here point out,

“The basic premise rests on the work of Nobel prize-winning economist Robert Solow, who documented that advances in technology and knowledge drove US economic growth in the first half of the 20th century. If it was true then it’s even more so in today’s information economy.”

Nevertheless between 1964 and 2004 the US government’s support of science declined 60% as a percentage of GDP. China, meanwhile, continues to invest heavily in the future. For example China invested $34.6 billion in the clean energy sector in 2009; the US invested $18.6 billion. Already most of the solar panels and wind turbines being installed in the United States are made in China. This is one technology sector where the United States can’t afford to be left behind, but that’s exactly what’s happening.

This is the place where you make the argument, “In this country we don’t believe in industrial policy, choosing one industry over another. That’s socialism. We leave it to the market to sort things out.” OK, then what do you call R&D tax breaks and tax holidays that even the Reddest states (like Texas) use to lure high-tech industries?

You can make the case that industrial policy doesn’t always work. In the 1980s MITI in Japan heavily bankrolled the semiconductor and computer industries, resulting in Japanese companies becoming dominant in those sectors worldwide. That dominance was eventually overcome by more entrepreneurial American companies, though not without considerable assistance from and strong-arming on the part of the US government.

I’d argue that without MITI’s guidance and backing you would never have heard of today’s giant Japanese semiconductor and computer firms. The same goes for ETRI in Korea and ITRI in Taiwan, both of which nurtured promising local companies to international prominence.

Investing in the Future

As the authors of the LA Times article point out,

“And we need to recognize that the cost of basic science, and the time it takes, require a sustained government commitment because industry can’t be relied on to fund incremental and high-risk science for its own sake without any guarantee of payoff.”

When it comes to R&D, American companies tend heavily toward the D or development side, with pure research being left to universities. This works as long as research grant funding holds up, but that’s now in the process of disappearing. The national Institute on Aging is now turning down more than 90% of scientifically meritorious research grant proposals due to an inability to finance them. Leading research universities such as my alma mater the University of California Berkeley are falling behind as their funding sources dry up. The industries and startups that rely on this research will suffer as a result.

As philanthropist Mary Lasker remarked, “If you think research is expensive, try disease!” As the baby boom generation continues to age, our annual federal Medicare expenditure on Alzheimer’s is projected to reach $627 billion, well in excess of the entire Medicare budget for 2010 ($468 billion). Humanitarian considerations aside, putting tens of millions of dollars per year into Alzheimer’s research could be one of the best investments we’ve ever made.

Don’t Just Say No

The current Republican “Pledge to America” calls for a reduction in federal spending on non-defense-related science research to pre-stimulus levels. The National Institutes of Health, the National Science Foundation and other major sources of research grants are facing substantial budget cuts. This is shortsighted in the extreme.

The whole concept of investing involves putting money into what looks like worthwhile ventures now in the hopes of greater returns later. We need to continue to invest in our future if we want it to be somewhere we’d like to be.

2 Responses to Defunding Innovation

I don’t want to diminish the importance of spending on Scientific Research, but “fixing” today’s problems requires spending on engineering. Electric and hybrid vehicles, wind-power, even hydrogen fuel cells are over the scientific hurdles and the result of engineering effort. The EVs are still aching for the scientists to make a breakthrough in battery tech. But we need basic science coupled with smart applications to really make progress. Both are under-funded. But the scientists still seem to have a much higher profile than the people make it work!

I completely agree. But engineers are usually employed by private industry and therefore paid through the sales of their companies’ products and services. Scientists typically live from grant to grant and are thus dependent on funding sources that are currently under attack–an attack that I think is quite short-sighted.